Going through a tough time, you needed quick cash, so you took out a payday loan to cover an emergency expense. That loan led to another one, and now you’re looking at borrowing again to cover those previous loans. In over your head, you’ve heard refinancing has helped people in your situation in the past. But you aren’t sure what refinancing entails, or whether it’s even a good idea. In this complete guide to refinancing a payday loan, we’ll cover all of that – plus a couple of alternatives you may want to explore.
What is Payday Loan Refinancing?
A payday loan is an unsecured short-term loan that typically comes due on your next pay date. Because they often roll over and get out of hand, borrowers often refinance payday loans to escape high-interest debt cycles. In essence, payday loan refinancing means replacing one with a more easily managed loan that offers a longer term or a better interest rate, which can lower the cost.
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What are the Benefits of Refinancing a Payday Loan?
Refinancing a payday loan can offer significant financial relief. Among the benefits of refinancing are lower payments and better cash flow . Refinancing a payday loan can also help you eliminate the penalties and fees often associated with rolling over payday loans.
- Lower payments. Payday loans often carry triple-digit APRs. Refinancing into a personal loan can potentially secure much better rates, lowering your payments and saving you a significant amount of money over time.
- Better cash flow. Payday loan due dates align with your next paycheck. Extending your repayment term to a year or more can make your payments more manageable.
- Avoid penalties and fees. Refinancing avoids the rollover fees or default charges usually associated with payday loans.
Alternatives to Refinancing a Payday Loan
There are alternatives to refinancing your payday loan that may also save you money and extend your loan terms. The most common of these are loan consolidation and credit counseling. Here’s what to expect from each of these alternative solutions.
Loan Consolidation
Borrowers often consolidate payday loans during a time in which multiple loans have rolled over, resulting in accumulated fees and the need to simplify payments. Usually offered as personal loans, you’ll need good to excellent credit to get the lowest interest rates on consolidation loans.
Consolidating payday loan debt can offer:
- A lower interest rate
- Potentially lower, more predictable payments
- An extended payment period, reducing payments, late fees and stress
Here’s how consolidation works: You’ll take out a new loan from a bank, credit union or online lender at a lower interest rate to pay off your payday loan debts. This can spread loan payments over several months, at a lower interest rate, often saving you hundreds of dollars.
Credit Counseling Services
Credit counseling services offer financial guidance to help you manage all of your debts effectively. They offer free, or low-cost advice on budgeting and debt reduction, as well as financial education. An accredited counselor reviews your finances, helps you create a budget and may recommend enrolling in a personal finance workshop, or a debt management plan (DMP).
With a DMP, your counselor will seek to negotiate lower interest rates, waived fees, and more affordable payments with all of your creditors. You’ll then make a single monthly payment to the credit counseling agency, which will be distributed among your creditors. It should be noted DMP acceptance varies among payday lenders. Some will agree to work with you – others will not.
Title Loans Serviced by LoanMart
A title loan serviced by LoanMart can help you resolve a payday loan if you have a vehicle in your name and a steady income. A title loan is a secured loan that uses your vehicle’s title as collateral. Typically, you can get more money with a title loan than you can with a payday loan. Also, the interest rates on LoanMart-serviced title loans are usually lower than those for payday loans.1
How to Refinance a Payday Loan with a Title Loan Serviced by LoanMart
To apply for an auto equity loan serviced by LoanMart, you must be at least 18 years old and live in the state in which you’re applying for the loan. A vehicle of sufficient value to support the loan, registered in your name, is also needed. The other key qualification requirement is a consistent source of income, whether from employment or an alternative such as Social Security, retirement funds, disability or alimony.1 A lien will be placed on the title of the automobile when you accept the funds, and removed when you pay off the loan.
It can take just five minutes to apply online and minimal paperwork is required.1 3 You’ll be asked to provide a government-issued ID, a utility bill or other proof of address and proof of income, such as pay stubs. Clear photos of your car, inside and out, along with pictures of its VIN and odometer reading will also be requested, to help verify the value of your automobile. In some cases you may be asked to provide a DMV form granting permission to place a lien against the title of the automobile you pledge as security for the loan.
With that documentation in hand, refinancing a payday loan with a title loan serviced by LoanMart is easy and takes a minimal amount of time.
All you need to do is:
- Complete the brief online application, or apply over the phone by calling 855-422-74121
- Submit the required documentation
- Sign your loan agreement when approved and deliver your vehicle’s title
- Receive the loan proceeds and use them to satisfy the payday loan
Tips to Avoid Future Payday Loan Debt
Carrying significant financial risks due to their structure and costs, payday loans can trap borrowers in unsustainable debt cycles. This can happen when payday borrowers roll their loans over when unable to pay them off in the time allowed. This can lead to repeated borrowing and elevated credit risks. Payday loans also typically feature annual percentage rates far exceeding those of personal loans, credit cards and LoanMart-serviced title loans. These factors make avoiding future payday loans a smart thing to do.
To avoid future payday loan debt:
- Create a budget to manage your finances. Track your income and expenses so you can spot and address potential cash shortfalls early. Cut back on non-essentials like dining out to free up cash.
- Build an emergency fund. Start a small emergency fund – even $300 may be able to cover minor crises without borrowing. Build your fund up to three to six months of living expenses. This can make a significant difference should you experience an income disruption
- Contact creditors to inquire about payment plans, hardship extensions or deferrals rather than resorting to a payday loan to solve a cash shortfall.
- Search for local nonprofits for emergency financial assistance. Perhaps family members or close friends can help you out of a financial jam.
If your payday loan debt has become a problem, consider refinancing it with a title loan serviced by LoanMart. You’ll find competitive interest rates, flexible repayment options and exceptional customer support. Apply today!
